Greece told to prepare new cuts

The finance ministers of the eurozone agreed tonight that, if the financial markets continue to undermine the Greek government’s efforts to consolidate the country’s public finances, Greece should propose additional measures to cut its budget deficit.

Jean-Claude Juncker, the president of the Eurogroup, the finance ministers of the eurozone, said that ministers had identified specific reforms that Greece should consider, including raising value-added tax, placing excise duties on luxury goods and cars and increasing taxation on energy.

He said that Greece had committed itself to propose additional measures if needed. He said, however, that in an extreme scenario the eurozone would “impose...the acceptance of additional measures” on Greece.

Juncker said that the need for additional measures would be determined based on Greece’s progress towards meeting its target of reducing its deficit by four percentage points in 2010. Greece’s deficit in 2009 was 12.7% of gross domestic product (GDP), the largest in the eurozone.

“We expect Greece to prove that it is taking the commitments it has given very seriously,” Juncker said.

Juncker said that Greece would report to the Eurogroup by 16 March on whether it is on course to cut its deficit by four percentage points. The report will aid the European Commission and European Central Bank in carrying out an evaluation of Greece's situation.

He said that any additional measures would be adopted by a qualified majority vote of eurozone countries, without Greece participating.

Finance ministers hope the details offered on possible further measures will be enough to calm febrile investors. The value of the euro has been driven sharply downwards over the past two weeks because of concerns about the state of Greece's public finances. The single currency hit a nine-month low of 1.3529 against the dollar on Friday. It was slightly up on Monday, trading at around 1.3607, but benefited from US markets being closed for a public holiday.

The financial markets are completely wrong if they think they can destroy Greece

“The financial markets are completely wrong if they think they can destroy Greece,” Juncker said.

Finance ministers will tomorrow approve a programme of austerity measures already presented by the Greek government, including a cut in civil-service pay, a reduction in the size of the civil service and tax reforms.

Olli Rehn, the European commissioner for economic and monetary affairs, said that the Greek crisis had demonstrated that member states should commit themselves to a tighter co-ordination of their economic policies. He said the Commission would soon make proposals to further strengthen “the surveillance and co-ordination of national economic policies”.

“We shall not only focus on budgetary policies,” Rehn said. “Our aim is to focus also on structural issues and macroeconomic imbalances,” he added.

Rehn said that the Commission would publish its interim economic forecasts on 25 February.